40. When you were setting the scheme up, how
far did you look to advice and good practice from departments
like the Department of Social Security and the Treasury who of
course deal with systematic fraud on an everyday basis and they
have already got checks and balances in to try and avoid this?
Did you look at their experience to see whether you could learn
from that before you started this scheme?
(Mr Grover) I cannot recall specific discussions about
that issue with other departments. Of course in designing the
scheme we drew on some of our own experience, and Mr Holmes' question
implies there is some experience on which to draw. We looked at
that and arrived at the decision we did, balancing the different
objectives of the scheme, but no, I cannot recall any specific
discussions with other departments.
(Mr Lauener) We also had advice from KPMG who were
advising us throughout the development phase of the national framework,
so there was a lot of advice and indeed a lot of ongoing consultation
at that point.

Chairman

41. They are not the people who were advising
Enron, are they?
(Mr Lauener) No, they are not.

Paul Holmes

42. Have you got any observations yet on how
far the balance in fraud allegations is down to training providers,
et cetera, around the country and how far it is down to any lapse
of security with Capita and their central computer?
(Mr Lauener) Well, I think what is becoming clear
is that the cause of the more recent problems is the unauthorised
access by unscrupulous providers to the system, those providers
already having access in respect of any of their own learners
that they had that they were working with and providers then going
beyond that to get access using their user ID into other parts
of the system. We do not yet have a full story and, as I said
earlier, we are absolutely determined to get a complete account
of exactly how patterns of access happened. We are following systematically
all the complaints back to providers and then looking at patterns
of access and we are working with Capita and Cap Gemini Ernst
& Young really to build that complete story of what happened
in the couple of months, October and November in particular, but
in the period before that as well.

Mr Shaw

43. In your answer to my colleague Mr Holmes
in respect of fraud, you used your own experience. I wonder, it
is perhaps a shame that you did not have a look at the 1998 Audit
Commission Report called Ghost in the Machine. They said
at the time in relation to IT fraud and abuse, and this was undertaken
by the Audit Commission, "Computer crime is on the increase.
While key risk areas remain, new dangers are emerging." How
true that was. I wonder perhaps there could be further reading
as well. This is published by the Treasury and available to all
departments and other reading is The Fraud Report, Inside
Fraud, Fighting Fraud, Accounting Irregularities and Finance
Fraud, and the list goes on. If you had only relied on your
own experiences, I think this Committee is extremely concerned
that there was all this money coming from the Treasury and yet
the reports that are available right across all government departments
were not looked at and clearly there were new dangers emerging
and the new dangers were these ILAs.
(Mr Grover) If I may, Chairman, when I said "our
own experience", it does of course include material that
we can get from reports of that sort which you have just referred
to. Clearly we were alert to issues around IT security. That was
very much built into the contract discussions with Capita. We
took expert external advice on those issues and of course, as
Peter Lauener has said, we are still investigating what the cause
of unauthorised access to numbers was. We do not know whether
that was an IT problem or some other sort of problem and that
is precisely why we need to work to look at that, but the sorts
of issues that are raised are certainly ones that we had been
aware of and we would have looked at in the contracting process.

44. The Chairman asked you why could you not
just have fixed the issue with the fraud in order that the system
could carry on. Is it not the case that basically the fraud was
out of control and you had no choice? This was a virus which had
spread really and you had no antidote for it and the system had
to stop. I wonder, now that you have uncovered the fraud and the
inadequate systems that were put in place, whether there has also
been some soul-searching in the Department and in fact you are
not hitting the targets in terms of people and particular groups
of society who have not accessed learning in the past and the
majority is going to people who have been to college before and
have professional qualifications and the reason why is because
it is an unwieldy arrangement where there are not proper checks
and balances as to who is a good provider, who is not a good provider
and there is no local knowledge, and that clearly if we had followed
the TEC route, then perhaps we would not be in this mess in the
first place?
(Mr Lauener) On your first point, our concern was
certainly, as I explained before, that just taking some providers
out or suspending them where we had already had allegations might
have been a short-term fix, but we did not have sufficient assurance
that that would have sorted the problem there and then.

45. You had not antidote to solve this particular
virus?
(Mr Lauener) We think the antidote was a larger-scale
review than could have been managed with a short-term suspension,
some sticking plaster and some new arrangements on top of what
was already there. We needed to break through this with a fundamental
analysis of what went wrong and since November 23 that
is nearly two monthsalthough, I have to say, we have been
working extremely hard to get the whole story. We do not yet have
the whole story, but we have got much more of the story than we
had on November 23, though we have got a bit to go still. On your
second point, I can tell you that we are absolutely determined
to learn the lessons. Ministers have also made it quite clear
that there will be a successor programme and the reason we are
determined to learn the lessons is because of some of the very
encouraging things, not only the total number of learners, but,
for example, the 16 per cent of those who had no previous qualifications.
If you apply that to over a million learners, that is very encouraging.
There are some very good things that we need to build into the
new programme and make sure are not lost.

46. In the document Delivering the Results:
A Strategy for 2006, one of the milestones for 2002 is to
expand Individual Learning Accounts. Have Ministers advised you
that this document is going to be revised or does it remain policy
for the Department?
(Mr Lauener) Well, the Strategic Framework covers
the whole range of the Department's programmes. In relation to
Individual Learning Accounts, Ministers have made it quite clear
that they do expect, and have a very firm intention, to introduce
a new programme once we have sorted the problems and once we are
clear on the way ahead, so there will be a new ILA programme

47. Expansion?
(Mr Lauener) Like all of these things, it depends
on the base that you take.

Mr Shaw: Individual Learning Accounts, so I
take that as a case to expand.

Chairman

48. That means more than there are now.
(Mr Lauener) You have made your point eloquently.
There were clearly more Individual Learning Accounts in 2001 than
there were in 2000. We do not know what the capacity of a new
programme might be until the new programme is designed.

49. When do you think that new programme will
be introduced?
(Mr Lauener) It is too early to say. Until we have
got this full account of what happened and until we have got to
the bottom of all the problems that there have been, I do not
think we can put a date on that.

50. For this Committee, that is the least satisfactory
answer that you have given. There are a lot of people out there
going out of employment and going out of business. This is not
Enron, I have to say. I made a joke about Enron, but this is not
Enron. This is a relatively modest scheme and surely you can sort
the problems and get the show back on the road relatively quickly
if we are interested in expanding individual learning. Surely
the imperative is with you to get the show back on the road. Why
is there absolutely no indication from what you have said, except
deep pessimism of even further inquiries.
(Mr Lauener) There is absolutely a determination to
get the show back on the road, as you put it, to develop and launch
a successful programme. But I think the Committee will be highly
likely to criticise the Department in the future if we said that
the scheme would be introduced at a particular point and were
then unable to do so because we had not, when we said that, understood
the full nature of the problems that we were grappling with on
the first programme. So we do feel we need to get absolutely to
the bottom of those problems and we are doing that absolutely
as quickly as we can and then we will develop the new programme
in the light of that.

Jeff Ennis

51. Over the course of last summer we saw a
massive expansion, which you have already indicated, of ILAs.
In May we had one million and by July it was 1½ million and
then by October it had even increased to 2½million. A learning
provider wrote to the Department mid-June and someone actually
indicated that a learning provider was creating fraud in mid-June
and that learning provider was suspended at the end of June, and
yet we did not actually suspend the provision for new learning
providers until the end of September. Why? Why did it take over
three months actually to suspend the registration of new providers?
(Mr Grover) What we were trying to do was to put in
place the mechanisms that I have described in answer to Mr Simmonds
in an attempt, I think, to do what one or two Members of the Committee
have suggested we should have done, which was to try and keep
the show on the road and mend things as we went along. That was
what we tried to do, to mend things as the problems began to emerge
and, as Peter Lauener has explained, it became apparent that the
fix needed to be more fundamental and more radical, which was
why we had to suspend the programme. We believed from June onwards
that we could put in place some additional measures that would
help us tackle that, but it became apparent, with the sort of
run of figures that you are talking about and, more importantly
I think, with a worrying rise in the level of complaints, that
we were not going to be able to do it while keeping the scheme
going, so that is why there was that period between June and the
decision in October to suspend the scheme.

52. So the fact that it occurred over the summer
recess or that we had a new team of Ministers in did not come
into the equation to delay the suspension of the new providers?
(Mr Grover) No.

53. According to the statistics, has there been
any sort of regional variation in the level of fraud in particular
regions? The only reason I am asking is that I notice that in
the statistics which have been provided the West Midlands have
by far and away the highest number of ILA holders.
(Mr Lauener) I was going to make the same point, that
the number of account holders in the West Midlands as a proportion
of the population is certainly significantly higher and all the
other regions seem about the same level and in the West Midlands
it is certainly higher. We are not in a position to judge whether
the incidence of fraud and problems is higher in the West Midlands
or not, but there is certainly a number of cases that we are discussing
with the West Midlands police and there are probably more cases
in the West Midlands than in other parts of the country.

Mr Baron

54. Can I just return to this issue of why has
it taken so long now to find out what went wrong and to put new
structures in place. You have said that it was a small number
of providers exploiting the system and the structures were not
in place, so you then had to close the whole system down which
has caused a lot of suffering for a lot of people. Knowing all
of this, why has it now taken the best part of two months up to
this point actually to put a new system in place so that we can
move this initiative forward?
(Mr Lauener) I think the answer to that is that it
is a small number in relation to the 8,900 providers registered,
but there is still a sufficient number where we have concerns
and a lot of complaints that we are following through. If you
look at the figures that John Healey gave for the payment run
for the week ending 21 November, for that week we paid 1,400 providers
and the total value of their claims was £3.5 million. There
were 136 providers in that week's run that we did not pay, but
the total value of the claims that we did not pay while we are
investigating them is £11.3 million.

55. If you do not mind the suggestion, you are
not quite answering the question in the sense that it is not the
number of providers, and you have said relatively that they are
small, but it is the fact that you did not have specific structures
in place to allow the providers to get away with exploiting the
system. Why did you not put new structures in place to make sure
this does not happen again and to move this initiative forward?
(Mr Lauener) I think the issue there for us or at
least one of the issues, as we have talked about already, is what
quality assurance arrangements should apply and there are different
models that we could develop. The Scottish model is one that we
have already looked at. I think there are other aspects of this,
such as whether we would, under the new arrangement, want to have
even then an open-door policy subject to some new quality assurance
arrangements or whether actually we would want to select providers
in some way. So I think we still need to understand exactly what
has happened and understand more about, for example, those 136
providers, we would want to look at the kind of complaints we
have had and the way that relates to the pattern of database use
by those providers and then ask ourselves the question, "Would
new quality assurance arrangements be the answer or do we need
to refocus the scheme, invite providers and then run a tendering
exercise for providers?" Then there are all sorts of other
policy issues which need to be addressed in a new programme as
well.

Mr Turner

56. You were presented with a Manifesto commitment
and you have focused on delivering that commitment. I assume that
you asked for guidance and had said on occasion, "But, Minister
. . .", or "But, Professor Barber, the previous Government
decided not to do it this way because . . .". Did you ask
those sort of questions? Did you ask what the deadline was for
the implementation of that Manifesto commitment? Did you ask what
the formal outcome targets were?
(Mr Grover) Clearly we had a Manifesto commitment
and it was made clear that the intention was to have one million
account holders by 2002. The policy background, as I have described
it in previous answers, was also clearly an intention to get new
learners back into learning. It is worth saying, I think, that
one of the things that has always been clear about this policy
is that in a sense there are two elements to Individual Learning
Accounts: there is the universal offer of an Individual Learning
Account; and then there is also a targeted element to it. Getting
the balance between those two of course is one of the things that
we tried to get right this time and would want to address in producing
a new policy, but those were of course the issues that we addressed
in designing how to deliver against the Manifesto commitment.

57. I am trying to establish, did you appraise
the practicality of implementation and the value-for-money implications
and look at minimising the deadweight cost or was the overriding
objective to get one million people into the scheme?
(Mr Grover) We did of course look at the practicalities
of implementation and we took a lot of advice on those and we
did our best to work through them in the way we set up the framework
and the way in which we let the contract. The policy objective
was the policy objective that I have already summarised, to get
one million account holders and to target those accounts on people
returning to learning as well as making a universal offer. That
was the commitment and of course we tried to design a system that
enabled us to meet that commitment while at the same time delivering
good value for public investment. That was the intention.

Chairman

58. Thank you, Mr Glover. Obviously the Committee
was very keen to ask a lot of questions. We may have to have you
back at the end of our deliberations with our other witnesses,
but we are running late. Thank you very much for your attendance
and for your care in answering our questions.
(Mr Lauener) Thank you. We would be very happy to
come back.